Charities Blocked from Receiving Online Donations for Failing to Meet CA Good Standing Requirement

Assembly Bill 488 (AB 488), a California law effective on January 1, 2023, governs charitable organizations that receive donations through charitable fundraising platforms and platform charities. The law imposes certain requirements that charitable organizations must meet to remain in “good standing” with the California Attorney General’s Office, which is the state agency that monitors compliance with AB 488.

Assembly Bill 488 (AB 488), a California law effective on January 1, 2023, governs charitable organizations that receive donations through charitable fundraising platforms and platform charities. The law imposes certain requirements that charitable organizations must meet to remain in “good standing” with the California Attorney General’s Office, which is the state agency that monitors compliance with AB 488. Under AB 488, charitable fundraising platforms and platform charities may only “solicit, permit, or otherwise enable solicitations, or receive, control, or distribute funds from donations for recipient charitable organizations or other charitable organizations in good standing.” The California Center for Nonprofit Law is here to advise you on all legal requirements that impact your public charity, including how to remain in compliance with all applicable local, state, and federal laws. Call our office when you have questions about these important issues to keep your charity compliant and able to receive donations.

Consequences of Failing to Meet CA Good Standing Requirement

Over the past few months, various nonprofit organizations have unexpectedly found themselves unable to receive donations from online fundraising platforms, including Facebook. This prohibition was due to the platform organizations’ failure to meet the requirements necessary to remain in good standing under AB 488.

Unfortunately, their lack of good standing in California has implications beyond the state. Charitable fundraising platforms typically block all donations to these charitable organizations, not just those made by California residents. This situation has led to a significant loss in revenue for these organizations, many of whom were only aware of their noncompliance once they received a notice from the fundraising platform stating that they were ineligible for donations. Furthermore, regaining good standing status is neither quick nor easy, which prolongs the period that the organization must go without donations, in addition to the expenses incurred to meet the requirements under AB 488.

Complying with the CA Good Standing Requirement

To comply with the good standing requirement under AB 488, charitable fundraising platforms and platform charities must ensure that each recipient organization is in good standing in that:

· Its federal tax-exempt status has not been revoked by the Internal Revenue Service (IRS);

· The California Franchise Tax Board has not revoked its tax-exempt status in California; and

· The California Attorney General has not prohibited the organization from soliciting or operating in the State.

Only some charitable organizations are required to remain in good standing in California. For instance, a small community foundation based in another state that does not solicit and generally does not receive donations from anyone in California would not be required to remain in good standing in California.

To ensure that charitable organizations are in good standing, charitable fundraising platforms and platform charities must check the following resources:

· The IRS’s Tax-Exempt Organization Search Tool

· California Attorney General’s list of charities that may not operate or solicit in the State

· California Franchise Tax Board’s Revoked Exempt Organizations List

Unfortunately, regaining compliance with the good standing requirement can be a lengthy process. The Attorney General’s time to review and approve renewal paperwork could be delayed for a significant amount of time, just as regaining federal and state tax-exempt status can be a time-intensive process.

Attorney General’s Final Regulations and the Good Standing Requirement

The California Attorney General recently issued final regulations that address various issues related to the implementation of AB 488. §316 of the regulations addresses the good standing of charitable organizations and clarifies how charitable fundraising platforms and platform charities should handle questions about a charitable organization’s compliance with the good standing requirement.

First, the regulations state that charitable fundraising platforms and platform charities can hold or control funds for charitable organizations not in good standing for as long as it takes to determine an alternate to be sent the funds, which can range from 30 to 90 days as per §320 of the regulations.

Next, if an organization does not appear on the Attorney General’s list of charities that may not operate or solicit for charitable purposes, but the Registry Search Tool indicates that the organization is not in good standing, then charitable fundraising platforms and platform charities can solicit, hold, and send donations to the organization.

The regulations go on to clarify that although an organization on the list of charities that may not operate or solicit for charitable purposes is not in good standing, there are some circumstances in which charitable fundraising platforms and platform charities may solicit, hold, and send donations to the organization, as follows:

· If the organization is on the list on the first Wednesday of the current month but was not on the list available on the third Wednesday of the prior month, the platforms and platform charities may solicit, hold, and send donations for the organization for a five-business day grace period beginning on the first Wednesday of the current month.

· If the organization is on the list on the third Wednesday of the current month but was not on the list available on the first Wednesday of the current month, the platforms and platform charities may solicit, hold, and send donations for the organization for a five-business day grace period beginning on the third Wednesday of the current month.

Finally, suppose the Registry Search Tool indicates that the charitable organization is in good standing. In that case, charitable fundraising platforms and platform charities may solicit, hold, and send donations to the organization.

Contact Us Today for Legal Assistance

The California Center for Nonprofit Law focuses its practice on legal matters that affect charities and other nonprofit organizations in California. This unique focus allows us to concentrate on keeping abreast of the ever-changing laws and policies as they develop over time. We are here to represent the interests of your nonprofit organization throughout every stage of your legal matter. Call us at (949) 892-1221, email us at info@npolawyers.com, or fill out our contact form online and schedule a consultation about your nonprofit organization today.